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Conditioning Aid On Social Expenditures

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  • WILLIAM JACK

Abstract

Aid conditionality forces countries to adopt policies that they would not otherwise choose. We examine how government discretion should be so constrained when the donor cannot fully control public expenditures, but instead can influence a less disaggregated indicator of public policy, namely the allocation of public spending between the social sectors (e.g. education, health, etc.) on the one hand and more traditional public goods (e.g. infrastructure) on the other. We first show how budget allocations will be altered when recipient government preferences are known - i.e. we characterize what policies the donor should "buy"- and how a given aid budget should be allocated between different types of countries. When recipient government preferences are not known by the donor, the permitted policies are distorted due to incentive constraints, and the extent to which aid flows are optimally differentiated between different countries is reduced. Copyright 2008 Blackwell Publishing Ltd..

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  • William Jack, 2008. "Conditioning Aid On Social Expenditures," Economics and Politics, Wiley Blackwell, vol. 20(1), pages 125-140, March.
  • Handle: RePEc:bla:ecopol:v:20:y:2008:i:1:p:125-140
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    1. Azam, Jean-Paul & Laffont, Jean-Jacques, 2003. "Contracting for aid," Journal of Development Economics, Elsevier, vol. 70(1), pages 25-58, February.
    2. Svensson, Jakob, 2003. "Why conditional aid does not work and what can be done about it?," Journal of Development Economics, Elsevier, vol. 70(2), pages 381-402, April.
    3. Casella, Alessandra & Eichengreen, Barry, 1996. "Can Foreign Aid Accelerate Stabilisation?," Economic Journal, Royal Economic Society, vol. 106(436), pages 605-619, May.
    4. C. S. Adam & S. A. O'Connell, 1999. "Aid, Taxation and Development in Sub-Saharan Africa," Economics and Politics, Wiley Blackwell, vol. 11(3), pages 225-253, November.
    5. Svensson, Jakob, 2000. "When is foreign aid policy credible? Aid dependence and conditionality," Journal of Development Economics, Elsevier, vol. 61(1), pages 61-84, February.
    6. David Dollar & Craig Burnside, 2000. "Aid, Policies, and Growth," American Economic Review, American Economic Association, vol. 90(4), pages 847-868, September.
    7. Giulio Federico, 2004. "Aid and Policies under Weak Donor Conditionality," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 13(3), pages 395-416, September.
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